In his latest book, Beyond the E-Myth, Michael E. Gerber specifically talks about how small businesses should be built with the idea of serving two distinct customers in a very specific order.
The first customer is not the day-to-day customer – that’s actually the second customer. Instead, Gerber maintains that your primary customer as an owner and entrepreneur is the one to whom you will ultimately sell the business. This is the person who falls in love with the concept you’ve built and decides to buy it.
Now, not to give away the whole book, but many small business owners, when they look to market a business for sale, plan on selling it to the wrong buyer – one that looks a lot like they did when they started the business – a technician who is really only looking to buy themselves a job.
Why wouldn’t you build a business that you can sell for real money? Not a pittance for all the years and hard work you put into growing your company. If you truly are looking to sell your company in the years to come, you want buyers who have deep pockets, not someone who has to scratch together loans and life savings on a low-ball offer.
When it comes to valuing a business for sale, the best business deals always originate from companies who have true financial transparency. The books are all in order, there are clearly defined systems in place for all monies coming into and out of the business, forecasting is conservative and execution is flawless.
That sells a company. That gives buyers a real look at the financial security of the business. If your bookkeeping is in disarray, many times, financially secure buyers will never enter into the due diligence phase of a purchase because they can never arrive at an accurate snapshot of the business’s potential because it’s run so poorly.
Case in point – a client in Georgia several years ago was looking to purchase a business in Wyoming, of all places. He located a business for sale in the state and began discussions with the owner. When my client requested 3 years of monthly P&L, Balance Sheets and other financial statements for the business, he was provided with an Excel spreadsheet of the last three months and nothing more. My client pressed the owner and was informed this was all he had and that was how he had run his company for years. His response immediately became a big red flag since without the financial statements to support the companies activities my client would have been buying blindly.
Guess who didn’t buy a business, even though he knew that the company could be very viable with new ownership and management? It is important for business owners to understand that selling a business doesn’t start the day is ready to sell. Preparation should start several years before the business is ready to be purchased.
So I’d have to agree with Mr. Gerber – small business owners need to think about both of their customers – especially the one that is going to buy their business and one of the most important ways to do that is to have full transparency in all of your books and financials. Even if they are in poor shape now, getting started on them as soon as possible is critical for a lot of reasons – especially your pocketbook!
For a simple way to keep your financials transparent and up to date, check out BookkeepWithUs.com.
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